Today’s consumers have changed what it means to shop on the internet. Shoppers look for a highly personalized but consistent shopping experience. With rapid technological adoption, shoppers have numerous ways to shop and pay on the go. While the convenience economy was already boosting e-commerce businesses around the world, COVID-19 has really augmented it. In 2020, retail e-commerce sales worldwide amounted to $4.28 trillion, and this revenue is projected to grow to $5.4 trillion in 2022.
These rates indicate the changing retail landscape, and e-commerce businesses have to strive harder for delivering a seamless and unified omnichannel experience. To deliver such experience at scale, they must simplify their processes and support more dynamic than ever business models. With such breakneck growth rates, it is also important to have reliable systems and efficient processes in place to sustain fast growth with minimal errors for employees as well as customers. A significant arm of an e-commerce business where the impact of such mistakes can be felt is the finance function.
What are Some Critical Issues Faced by E-commerce Businesses?
Given the convenience economy and the rise of digital payments, customers today have a number of payment options available. The traditional cash on delivery method has been joined by debit and credit cards, net banking, digital wallets, UPI, and buy-now-pay-later. Often, e-commerce websites also offer discounts or EMI options for payment. Sometimes, the customers, too, use a combination of payment methods, such as gift cards, wallets, and cards. Keeping track of transactions across different payment modes can be a challenging task and one where errors can easily creep up, leading to loss of revenue at best, and compliance issues or fraud at worst.
Additionally, the return volume of sold products can be quite high in e-commerce, mainly because of liberal terms such as cash on delivery, return or replacement policies and also because of a lack of physical touch by end-customers, which quite often leads to a mismatch between the customer’s expectation and the product. These kinds of unique terms and offers increase the probability of errors if there’s no proper account reconciliation process.
E-commerce businesses also have a complicated transaction-delivery system. Products are usually shipped from the manufacturer to the company warehouse and then to the logistics partners to deliver them to the customer. This usually involves multiple transactions: a purchase order being issued by the company, total goods received by the company, shipping to the logistics partners, returns and commission paid to payment gateways or sellers, etc. Calculating these commissions and payable fees is also important to avoid any disputes in the business.
On top of all this, compliance is a big issue. Consider an example of the Indian retail landscape. Most of the e-commerce businesses offer pan-India operations, which come with their own sets of issues. For example, laws regarding the workforce differ from state to state. So these companies have to either resort to state-specific strategies or tend to adopt the strictest compliance practice, to be compliant with all states. Additionally, these companies usually sell across multiple categories as well, which means having specific tax treatment and compliance for every category. This kind of complicated compliance structure requires e-commerce businesses to invest in the right insights at the right stage so that they don’t end up paying hefty fines and get it right the first time.
Revamping Finance Operations for Modern E-commerce Businesses
The answer to all these issues is a robust system that can capture your financial events in real-time and project their implications to the business in a programmatic, secure, and accurate way. Your finance team must be empowered with software to course-correct business operations, identify frauds or aberrations immediately.
One of the major challenges that finance teams face is data: not the lack of it, but too much of it in too many different places. E-commerce companies need a clearly defined finance data management strategy to guide the collection, storage, and interrogation of the rising volume of data needed to perform the types of analytics the business requires. To support the business—whether through more nuanced financial-scenario planning, insight into how to better manage liquidity, or improved guidance on where to best deploy assets—finance must be able to quickly marshall high-quality, trusted data, and ERPs and spreadsheets can only get you so far.
Additionally, e-commerce companies should leverage advanced analytical techniques to find effective information on the business performance and devise actions needed to improve it. The finance teams need to be equipped with systems that can handle complex and sensitive transactional data securely and automate reconciliation of large-scale transactions with high accuracy and in real-time.
In addition to infrastructure technology changes, e-commerce businesses should also look into automating mundane finance tasks, such as manual data collection and consolidation of financial and operational data. There will be greater control and visibility of the data with reduced compliance risk since teams will no longer be using multi-line spreadsheets to complete their duties. Streamlining these tasks frees up the finance teams to assume a greater strategic role for the business and become agents of change, and e-commerce companies can efficiently grow their business.